The yuan is likely to depreciate against the US dollar this year due to weakening economic growth at home and slumping exports, Standard Chartered economists said yesterday.
The depreciation could affect the growth in yuan deposits in Hong Kong, and temper enthusiasm for the yuan's internationalisation as Beijing tries to promote the currency's use in trade settlement and investment.
'We think the volatility in the global economy and in Europe will make the Chinese authorities very cautious about allowing yuan appreciation,' said Robert Minikin, a strategist at Standard Chartered Bank. Appreciation could resume next year, he said.
The official China Securities Journal said yesterday in a front-page editorial that, as well as weakening the yuan, the central bank should also cut interest rates soon to help the economy and to boost confidence.
Minikin, however, does not think Beijing will re-peg the yuan to the US dollar as it did after the 2008 financial crisis, and sees it continuing to allow more two-way movement in the currency.
Beijing scrapped the yuan's decade-old peg to the dollar in July 2005 and allowed the currency to rise by 19 per cent against the US currency over the next three years. But in July 2008, when the global financial crisis erupted, it reinstated a de facto peg of 6.83 yuan to the dollar.